Chevron taking over operatorship at block with ‘enormous potential’ off Uruguay

CEG Uruguay, a subsidiary of the Isle of Man-headquartered oil and gas company Challenger Energy Group (CEG), is in the process of selling a partial stake in a shallow water exploration block off the coast of Uruguay to Chevron Uruguay Exploration Limited, a wholly-owned subsidiary of the U.S.-based energy giant Chevron. This will enable the U.S. oil major to get the operator role for the block.

After Uruguay’s state-owned oil and gas company ANCAP awarded Challenger with the AREA OFF-1 block in May 2020, the company confirmed a farm-out process for the block three years later. Thanks to the farm-out agreement with Chevron, the company is in the process of divesting a 60% interest in the AREA OFF-1 block.

Once Chevron acquires the 60% participating interest, it will also assume operatorship of the block while Challenger will retain a 40% non-operating interest. The U.S. player will pay $12.5 million cash on completion of the transaction to CEG and these funds will be used to support the further development of the company’s business.

Moreover, Chevron will carry 100% of Challenger’s share of the costs associated with a 3D seismic campaign on AREA OFF-1, up to a maximum of $15 million net to the Isle of Man-based player. If Chevron decides to drill an initial exploration well on the block after the 3D seismic campaign, it will carry 50% of CEG’s share of costs associated with that well, up to a maximum of $20 million net to the firm.

While the duo has got in touch with the regulators, the completion and financial closure of the acquisition will be subject to the satisfaction of conditions precedent and customary third-party approvals from the Uruguayan regulatory authorities, which are anticipated to take several months to finalize.

Eytan Uliel, Chief Executive Officer of Challenger, commented: “We are absolutely delighted to announce the farm-out of our AREA OFF-1 block in Uruguay to Chevron, a globally recognised industry leader. We firmly believe that AREA OFF-1 holds enormous potential, and this farm-out is strong validation of the high-quality technical work CEG has done to-date. 

“Our stated strategy for AREA OFF-1 was to introduce a larger industry player as operating partner, with a view to rapidly progressing the block via an accelerated 3D seismic campaign followed by, we hope, exploration well drilling. The farm-out achieves this aim, and we look forward to continuing on our exciting journey in Uruguay, both on AREA OFF-1, now in partnership with Chevron, and also on our still wholly owned AREA OFF-3 block.”

The AREA OFF-1 block and the broader offshore Uruguay play system are analogous to offshore Namibia, where recent prolific, conjugate margin discoveries were made by TotalEnergies (Venus-1 oil discovery) and Shell (Graff-1 oil discovery), and where reported multi-billion-barrel Cretaceous turbidite reservoirs have been encountered.

Covering approximately 14,557 km², the AREA OFF-1 block is a large block located about 100 km offshore Uruguay in water depths ranging from 80 to 1,000 meters. The company’s minimum work commitment in the initial four-year exploration period of the block required licensing 2,000 km of legacy 2D seismic data from ANCAP, reprocessing that data, and completing a geological and resource potential study.

Furthermore, the technical work undertaken by Challenger led, through the course of 2023, to the identification and delineation of three primary prospects on AREA OFF-1, with the total estimated recoverable resource (EUR) of around 2 billion barrels of oil equivalent boe across three prospects and about 5 billion boe in an upside case.

The company explains that the proposed farm-out of the 60% participating interest in the AREA OFF-1 license to Chevron aims to facilitate and fund an accelerated 3D seismic acquisition, with the intention being that such 3D seismic acquisition will occur during the initial four-year exploration period.

This farm-out deal comes after ANCAP inked contracts for four offshore blocks with Shell, APA Corporation, and YPF, enabling them to embark on exploration and eventual exploitation of oil resources off South America.